On June 25, 2018, the Committee submitted a comment letter to the Federal Reserve (the “Fed”) in response to the Fed’s proposals on amendments to the Regulatory Capital, Capital Plan, and Stress Test Rules (“Proposed Amendments”).
The letter commended the Fed for its efforts to relax the capital distribution and balance sheet assumptions in the Comprehensive Capital Analysis Review (“CCAR”) stress tests, which the Committee believes are positive revisions to the CCAR framework.
However, the letter expressed concern with certain aspects of the Proposed Amendments’ approach to integrating the results of the CCAR stress tests with the Basel-based capital requirements. The Committee questioned the continued reliance on standardization versus internal models. The letter expressed concern with the lack of CCAR transparency and disclosures regarding the adverse scenarios and the Fed’s loss models. It also noted that it is important to highlight the potential for double counting of the GSIB surcharge that may result from the proposed integration. The Committee recommended that the Fed should adjust the threshold for instituting mandatory capital distribution constraints and opposed the new stress leverage buffer becoming a binding capital constraint. The letter suggested that the Fed should eliminate the mandatory portion of the resubmission process. Finally, the comment letter expressed concern that the Fed has not disclosed details of any quantitative impact analysis that it conducted as part of these proposals.
The letter is available here.